Brazil real rises from three-year low as central bank intervenes

Brazil’s real advanced after policy makers intervened following a plunge in the currency last week to a three-year low on slower-than-forecast third-quarter economic growth.

The real gained the most in five months after the central bank sold $2.1 billion in currency swaps in two auctions today. The bank also offered as much as $5 billion today with an agreement to repurchase the U.S. currency later to boost liquidity. Swap rates dropped on speculation policy makers will keep borrowing costs at a record low through the first half of 2013 after a Nov. 30 reported showed that Latin America’s biggest economy grew at half the pace analysts had projected.

The currency appreciated 0.9 percent to 2.1172 per dollar at 5:43 p.m. in Sao Paulo after earlier rallying as much as 1.8 percent, the most on an intraday basis since June 29. Swap rates on contracts due in January 2014 fell four basis points, or 0.04 percentage point, to 7.17 percent.

“With the weak GDP outlook, there has been pressure on the real,” Bernd Berg, emerging-markets strategist at Credit Suisse Group AG, said in a phone interview from Zurich. “They don’t want the real to depreciate too quickly.”

The central bank sold 41,800 currency swap contracts due in January worth $2.1 billion in two auctions today to stem the real’s losses.

“The central bank once again offered currency swaps, helping stabilize the reeling real after Friday’s unexpectedly weak GDP figures sent the real into a tailspin,” Eduardo Suarez, a senior currency strategist at Scotiabank in Toronto, said in an e-mailed report. The central bank may try to keep the real between 2.05 and 2.15 per dollar, he wrote.

Currency Policy

Policy makers have oscillated between selling reverse swaps to protect exporters by keeping the real from strengthening and selling swap contracts aimed at preventing the real from depreciating too quickly and creating inflationary pressures,

On Nov. 23, the central bank sold $1.6 billion in currency swaps in the first use of the instrument since auctions from May 18 through June 29. From August through October, the bank sold reverse currency swaps to keep the real weaker than 2 per dollar and make Brazil’s exporters more competitive. The currency traded in a range of 2 per dollar to 2.1 per dollar from July 4 through Nov. 21.

To promote liquidity, the central bank sold dollars today in two credit line auctions. The first auction had a threshold of 2.122450 and the second had a price threshold of 2.132400, the bank said in an e-mailed statement. Policy makers last held such an auction in December 2011. The auction aims to improve liquidity as end-of-year company remittances squeeze the supply of dollars. The central bank rejected all dollar bids in its 2011 auction.